Private lending-tips risks

[Raj G.]

Hi, I am planning for private lending,specially some one who is investing in Bayonne or near by.

I am also wondering like is it good idea to do private lending, or use the money in some other better way. what are risks associated with this and how to mitigate them..Thanks

[Jeff S.]

We also only loan locally too, which is why, @Raj G., except we'd never accept loan documents prepared by a borrower and I wouldn't know what to do with a credit report if it hit me in the head. Nothing wrong with any of it though. My point is that private lending terms are as unique as the individual lenders and as state laws allow.

You have several options, depending upon the amount of control and safety you want. These include the various B2B and P2P web sites like Prosper and Lending club, as well as many Crowdfunding sites. Traditional lending, using a note and mortgage or deed of trust (state dependent), to those you've met, and on properties you've physically walked through, will provide the greatest return for what we believe to be the least risk, so long as you educate yourself, Aniket.

The easiest way to learn while doing is to find a trusted broker or hard money lender at a local real estate club. Many HML's sell their loans or run mortgage pools. Some offer fractionalized interests in 1st position loans if you don't have much to loan or just want to spread some risk.

Depending upon the amount of business you represent, some HML's might be willing to hold your hand a little, showing you the ropes (as they try to sell you something). Local real estate clubs are the easiest way to initially find these individuals.

The best book I know of on this topic is a bit old but reasonably relevant, Smart Trust Deed Investment in California By George Coates. It was written by a CA broker but little of it is state specific and it should be helpful to you.

You might also do a search here on becoming a hard money lender since this topic is frequently addressed. Here are a few threads that might be helpful. The first lays out some step-by-step processes to get into the business:

I would like to become a Hard Money Lender. Any resources?

Experiences investing in trust deeds

Need Example Private Lending Agreement

Good luck, Aniket.